Demand

Consumption Rose as the Economy Recovered

Natural gas consumption rose in 2010, with strength in the electric power and industrial sectors driving the increase. EIA reported two estimates of natural gas consumption for 2010 because it changed its methodology in July 2010.⁷ For the purpose of comparing 2009 and 2010 consumption, it is best to compare consumption estimates based on the same (older) methodology for the two years. By that estimate, 2010 consumption was 65.4 Bcf per day, an increase of 2.8 Bcf from the previous year's level of 62.6 Bcf per day. (Using the new methodology, estimated consumption in 2010 was 66.0 Bcf per day.)

The Electric Power Sector Showed Strength

Hot summer weather had a major effect on natural gas use in the electric power sector during 2010. Consumption of natural gas for electric power generation rose close to historical highs in the summer of 2010 as temperatures were very warm across most of the county. The only region that was cooler than the 30-year average in the third quarter of 2010 (July, August, and September) was the Pacific Northwest Census region. The West South Central Census region, which includes Texas, Oklahoma, Louisiana, and Arkansas, had the hottest third quarter in the country, with 1,593 cooling degree-days (CDDs), 12 percent more than the 30-year normal. This region is very dependent on natural gas-fired power generation.

Colder-than-normal weather in the winter also led to an increase in consumption of natural gas for electric power generation. January heating degree-days (HDDs) were 2 percent greater than normal and February HDDs were 12 percent greater than normal. States in the southeast United States in particular experienced the cold snap, and the use of natural gas for power increased substantially in that region. Some parts of the Southeast are very dependent on electric power for space heating needs and much of the area is also very dependent on natural gas-fired generators. January and February 2010 consumption in Florida, for example, rose 23 percent and 15 percent, respectively, year over year. Cold weather again in December 2010 resulted in a 27-percent higher demand for power in Florida over the same month in 2009.

Between 1995 and 2010, natural gas capacity additions in the electric power sector have outnumbered capacity additions of other generation types. Generators added close to 258 GW of natural gas-fired capacity, about 81 percent of total generation capacity additions in that time period. Most of these additions were more efficient combined cycle plants. By contrast, most coal-fired power plants were built before 1980. Many of these natural-gas-fired plants are only now coming into frequent use, as natural gas prices have become competitive with Appalachian coal prices. Over the past several years, natural gas has made up an increasing share of total generation, largely at the expense of coal. At the end of 2010, natural gas-fired generators constituted 39 percent of 1,042 GW of total electric generation capacity. After falling from high levels in the summer of 2008, natural gas prices remained low and relatively stable through 2010, and power generators took advantage of prices by using more of their natural gas-fired generation capacity. During 2010, the price of the NYMEX near-month Central Appalachian coal futures contract rose gradually, and natural gas prices fell over the year, which may have led to fuel switching, particularly near the end of the year.

Industrial Consumption Rebounded

Industrial use of natural gas rebounded in 2010, increasing to 18.1 Bcf per day from 16.9 Bcf per day in 2009, as prices remained relatively low and the economy expanded. The natural gas-weighted industrial production index⁸ increased from 82.0 in 2009 to 86.5 in 2010. Industrial consumption was slightly above the 5-year average of 17.9 Bcf per day.

Footnotes